DirecTV Sub Growth Soars

5/07/2009 2:43 PM Eastern

By: Mike Farrell

Promotional offerings, its re-seller agreement with AT&T and a boost from the digital transition helped propel DirecTV to its largest quarter of net new subscriber additions in four years, CEO Chase Carey told analysts Thursday.DirecTV added 460,000 net new subscribers in the first quarter, its best quarter since 2004. Customer churn for the period, at 1.3%, was at its lowest level in 10 years.While the level of subscriber growth was especially strong given the maturity of the business and the current economic climate, Carey couched it somewhat by adding that the satellite TV giant may have overdone promotional pricing a bit during the quarter. But Carey said that promotions probably had more of an impact on monthly revenue per subscriber -- which inched up slightly to $80.35 in the quarter versus $79.70 in the same period last year, as more existing customers than expected took advantage of upgrade promotions."You can end up saying we marginally overcompensated a little bit [because of the economy],"Carey said on the conference call. "I think in hindsight I'm not that sorry about saying [that]."That's because those customers may get lower pricing for the 12-month period of the promotion, but they also make a 24-month commitment for service, meaning they are locked in at the higher regular price for the service just as long as they are for the promo price.Chief financial officer Pat Doyle also credited DirecTV's relationship with telephone companies -- it has resale agreements with Verizon Communications and AT&T -- which he said accounted for about 20% of gross additions. Gross subscriber additions at 1.2 million, were the highest for the company since 2004.And Carey said while he couldn't exactly quantify it, the digital transition also played a role in the additions, as it has for several cable operators."We believe it was a positive," Carey said of the digital transition.While the subscriber growth results were off the charts - analyst consensus estimates were fro 267,000 additions - investors appeared a bit spooked by the less than robust ARPU increase. At 0.8%, it was meaningfully below consensus estimates of 2.6% growth.That may have been a factor in DirecTV's stock declining in late trading Thursday. The stock closed at $24.08 per share, down 25 cents (1%) each.DirecTV's strong subscriber growth coupled with solid basic-video numbers from both cable companies and telcos begs the question where is the growth coming from. While the digital transition may provide some explanation it could also be a bad omen for the second largest satellite TV service provider, Dish Network."All in all, the results suggest a much healthier pay TV market than anyone anticipated... but still likely a very grim result for Dish Network (due to report next Monday), which is once again likely to be the odd-man-out," Moffett wrote. On the conference call, Carey reiterated DirecTV's guidance for the rest of the year, predicting that the satellite TV giant would record cash flow of $3 billion for the full year and expected net new subscriber additions for the full year to exceed 1 million.Carey added that DirecTV's "Whole Home" initiative, an effort to tie multiple set-top boxes in the home with each other and personal computers, will gain steam in the second half of the year. He said that the first iteration, getting set-tops in the home to "talk" to each other and share content, much like the telcos' multi-room digital video recorder initiative, is expected to move forward in the back half of this year. Introducing set-tops that can act as media centers, are more of a 2010 phenomenon, he said.